Newsletter No. 28 – Real Estate Law – November 2015
Condominium ownership, rents, real estate agents, and trespassing
LEGISLATIVE AND REGULATORY NEWS
Condominium ownership: information for buyers;
Order of August 27, 2015;
Rent increases
: Decree of July 29, 2015;
Real estate agents:
Decrees of June 29 and August 28, 2015 – Order of July 1, 2015;
Trespassing:
Law of June 24, 2015
CASE LAW
SALE
Error by the surveyor
Compensable damage
PROPERTY
Bank loan
Early repayment justified by dismissal
Expropriation for public purposes
Scope of the right to compensation
CONDOMINIUM
Action by a co-owner
Participation of the condominium association
General meetings
Appendices to the minutes
Payment of charges
Unenforceability of the transfer of ownership as an obstacle to the payment claim
Property manager
Regularization of the mandate
Authorization to take legal action
LEASE
Commercial lease
Judicial rent determination
Newsletter No. 28 – Real Estate Law – November 2015
Legislative and regulatory news
Information for buyers of condominium units
The government was authorized by the law simplifying business life¹ to adopt, within nine months of the law's publication, by means of an ordinance, provisions aimed at simplifying the information requirements for purchasers as stipulated in Articles L.721-2 and L.721-3 of the French Building and Housing Code (CCH), created by the ALUR law (Art. 15). The ordinance of August 27, 2015² was therefore issued on the basis of this law.
Documents relating to the organization of the building
The documents must now be given to the buyer, rather than attached to the preliminary sales agreement or the final deed, no later than the signing of the preliminary sales agreement. Furthermore, the requirement to provide meeting minutes has been modified. These must be given to the buyer, except when the selling co-owner was unable to obtain these documents from the building manager.
Regarding the delivery methods, the documents may be provided in any format and by any means, including electronically, subject to the buyer's agreement. The buyer must acknowledge receipt of these documents either in the deed containing the preliminary sales agreement by simply signing it, if it is a final deed, or, if the deed is a private agreement, in a document that they sign and date themselves.
Easing of the information obligation
When the buyer already owns a unit in the condominium, documents relating to the building's organization, the maintenance logbook, the information notice concerning the rights and obligations of co-owners, and the conclusions of the comprehensive technical assessment are not required.
Similarly, minutes of general meetings, the maintenance logbook, the information notice concerning the rights and obligations of co-owners, and the conclusions of the comprehensive technical assessment are not required in the case of the sale of an ancillary unit.
- 1 Law No. 2014-1545 of 20 December 2014 relating to the simplification of business life and containing various provisions for the simplification and clarification of law and administrative procedures
- 2. Ordinance No. 2015-1075 of 27 August 2015 relating to the simplification of the procedures for informing purchasers as provided for in Articles L. 721-2 and L. 721-3 of the Construction and Housing Code
Starting point of the withdrawal period
When documents relating to the building's organization and financial information are not provided to the buyer by the date of signing the preliminary sales agreement, the withdrawal period stipulated in Article L. 271-1 of the French Construction and Housing Code (CCH) only begins the day after these documents and information are provided to the buyer.
Furthermore, when documents relating to the building's organization and the overall status of unpaid charges and debts are not attached to the draft notarial deed, the reflection period only begins the day after these documents and information are provided to the buyer.
Trends in rents
Under Article 18 of the Law of 6 July 1989, as amended by the ALUR Law, in areas of continuous urbanization with more than 50,000 inhabitants where there is a significant imbalance between housing supply and demand, resulting in serious difficulties in accessing housing across the entire housing stock, a decree sets annually the maximum amount of rent increases for vacant dwellings and renewed leases.
The decree of 29 July 2015, issued for the application of this provision, applies to leases concluded between 1 August 2015 and 31 July 2016. According to this decree, when a vacant dwelling is re-let, the rent for the new lease cannot exceed the last rent charged to the previous tenant.
However, if no rent increase has occurred in the twelve months preceding the signing of the new lease, the rent charged to the new tenant cannot exceed the last rent charged to the previous tenant, adjusted according to the variation in the rent reference index.
The decree provides for several exceptions when the landlord has carried out improvements to the property, when the previous rent was clearly undervalued, and when the prefect has set a reference rent by decree.
- 3 Law No. 89-462 of 6 July 1989 aimed at improving landlord-tenant relations and amending Law No. 86-1290 of 23 December 1986
- 4 Decree No. 2015-931 of 29 July 2015 relating to the evolution of certain rents in the context of a new lease or a lease renewal, taken in application of article 18 of law No. 89-462 of 6 July 1989
Real estate agents
The ALUR law aims to further regulate the real estate agent profession. To this end, several texts have recently been adopted. Thus, the code of ethics, the principle of which was established by the ALUR law, is now applicable to these professionals. Similarly, the requirements concerning their insurance obligations have been clarified.
Code of Ethics
Since September 1, 2015, the code of ethics for real estate agents5 has been in effect. This code, containing twelve articles, includes requirements relating to the ethics of these professionals, their skills, and the organization of the company.
Insurance obligation
The obligation to take out civil liability insurance, imposed by Article 24 of the ALUR law, is further defined by a decree of June 29, 2015. This decree, which came into force on October 1, specifies that employees must be able to provide proof of an insurance contract at any time.
The minimum conditions of the contract, as well as its form, were the subject of a ministerial order dated July 1 of the same year. This order notably sets the minimum coverage amount at €75,000 and specifies the minimum content of the contract in an appendix.
Home invasion
The law clarifying the offense of trespassing8 amends only Article 226-4 of the Penal Code as follows:
Entering or remaining in another person's home by means of trickery, threats, violence, or coercion, except where permitted by law, is punishable by one year of imprisonment and a fine of €15,000. Remaining in
another person's home following the entry mentioned in the first paragraph, except where permitted by law, is punishable by the same penalties.
- 5 Decree No. 2015-1090 of 28 August 2015 establishing the rules constituting the code of ethics applicable to certain persons engaged in real estate and business asset transaction and management activities
- 6 Decree No. 2015-764 of 29 June 2015 relating to the obligation of professional civil liability insurance for real estate commercial agents
- 7. Order of 1 July 2015 amending the amended Order of 1 September 1972 setting out the minimum conditions of the insurance contract and the form of the supporting document provided for by Decree No. 72-678 of 20 July 1972 setting out the conditions for the application of Law No. 70-9 of 2 January 1970 regulating the conditions for carrying out activities relating to certain transactions involving real estate and business assets
- 8 Law No. 2015-714 of 24 June 2015 to clarify the offence of trespassing
Case law
Compensable damages in case of error by the diagnostician
Mix. July 8, 2015 (No. 13-26.686) PBRI:
In this case, the pest control report provided to the buyers was inaccurate and failed to inform them, before the purchase, of the advanced termite infestation in the building. The buyers therefore sued the real estate agent through whom they had purchased the property, as well as the insurer of the property inspector, the latter having gone into liquidation, seeking compensation for their losses.
The insurer appealed to the Court of Cassation, contesting its liability to compensate the buyers for material and enjoyment damages. In support of its appeal, the insurer argued that the consequences of the breach of the duty to inform could only be analyzed as a loss of opportunity and not as material damages.
The Court of Cassation dismissed the appeal. According to the Court, Article L. 271-4 of the French Building and Housing Code stipulates that the technical diagnostic report attached to the preliminary sales agreement or the final deed of sale of a property guarantees the buyer against the risk associated with the presence of termites, and that the diagnostician's liability is engaged when the diagnostic report has not been carried out in accordance with the established standards and best practices, and is found to be erroneous. The material and enjoyment damages suffered by the buyers as a result of this erroneous diagnostic report are therefore certain, and the diagnostician's insurer owes them coverage.
Early repayment penalty
1st Civil Chamber, June 17, 2015 (No. 14-14.444) F-PB:
Citing the dismissal of one of their colleagues, two co-borrowers prepaid their loans by refinancing with another institution and then sued the bank for reimbursement of the early repayment penalties.
The bank appealed the Court of Appeal's decision upholding the claim. According to the bank, the loan repayments were not actually motivated by the dismissal of one of the borrowers but by the failure to renegotiate the interest rate.
The Court of Cassation relied on the Court of Appeal's ruling, which specified that the borrowers had justified their decision to prepay the loans by the dismissal of one of their colleagues. The Court of Cassation therefore held that the Court of Appeal was correct in deciding that the reason related to the reduction in interest rates was in no way exclusive of the reason related to the dismissal and ordered the bank to reimburse the early repayment penalties.
Expropriation for Public Purposes – Scope of the Right to Compensation
ECHR 25 June 2015 (app. no. 24756/10) Couturon v. France
In this case, the applicant complained of the lack of compensation for the loss in value of the part of his property from which he had not been expropriated due to the construction of the A89 motorway near it, and invoked a violation of Article 1 of Protocol No. 1 relating to the protection of property.
The Court considered that France had a wide margin of appreciation in this case, insofar as the construction of the motorway fell within the scope of a regional planning policy in which the general interest of the community was paramount. Furthermore, the Court held that the owner had benefited from a fair judicial review, as the French courts had duly examined his arguments concerning the depreciation of his property following the construction of the motorway. Consequently, the Court concluded that there had been no violation of Article 1 of Protocol No. 1 to the ECHR.
Participation of the condominium association in the event of legal action by a co-owner
3rd Civil Chamber, July 8, 2015 (No. 14-16.975) FS-PBI
The owner of units in a building subject to condominium ownership, having been divided into units shared between two co-owners, sued the other owner for the demolition of constructions affecting the common areas, erected by the latter without authorization. To order the co-owner to restore the premises to their original condition, the Court of Appeal held that, since the condominium association was not organized, it could not be joined in the proceedings.
The Court of Cassation overturned this decision. According to the Court, a co-owner who individually brings an action seeking the restoration of the common areas must bring the condominium association into the proceedings, after having its representative appointed by the court if necessary.
Appendices to the minutes of the general meeting
3rd Civil Chamber, July 8, 2015 (No. 14-12.072) FS-PB:
The owner of a unit in a building subject to condominium ownership sued the building manager, demanding a copy of the caretaker's employment contract. According to the Court of Appeal, the co-owner was entitled to request from the building manager the documents that are required to be attached to the minutes of general meetings. This included the caretaker's employment contract, as her hiring required the approval of the condominium association.
However, the Court of Cassation ruled that the employment contract of an employee of the condominium association does not constitute an attachment to the minutes of a general meeting. The lower court's decision was therefore overturned.
Charges
3rd Civil Chamber, July 8, 2015 (No. 14-12.995) FS-PB:
In this case, the purchaser of units in a building subject to condominium ownership contested his conviction to pay condominium fees. According to the Court of Appeal, this purchaser was barred from challenging the general meeting at which the decision to call for funds was made, since he was unknown to the condominium association because the transfer of ownership had not been notified to him in the manner required by Article 6 of the decree of March 17, 1967, and therefore he did not need to be summoned.
The Court of Cassation, on the contrary, held that the condominium association, which argued that the transfer of ownership was unenforceable against the purchaser due to the lack of notification of the transfer, could not demand payment of condominium fees from him. The Court of Cassation therefore overturned the Court of Appeal's decision.
Trustee's mandate – regularization
3rd Civil Chamber, September 16, 2015 (No. 14-16.106) FS-PBI:
A general meeting on January 27, 2010, appointed a property manager until December 31, 2010. A subsequent general meeting on July 5, 2012, retroactively renewed the manager's mandate. Following
a judgment granting the request of two co-owners to annul a decision made by the general meeting, the property manager appealed the decision on behalf of the condominium association on October 25, 2011. As the property manager's mandate had expired by that date, the respondents argued that the appeal was inadmissible due to the manager's lack of authority.
The Court of Appeal held that the appeal filed by the property manager, who lacked a mandate at that time, was fundamentally flawed and that this flaw had not been remedied.
The Court of Cassation clarified that the regularization of the powers of the trustee who acted in court on behalf of the syndicate without a mandate cannot take place after the expiry of the appeal period; consequently, the Court rejected the appeal lodged by the condominium association.
Authorization of the trustee to take legal action
CE 3 July 2015 (no. 371433):
The general meeting of a condominium association had invited the property manager, by resolution, to "exercise a possible appeal against the building permit concerning the adjoining development." To uphold the objection of inadmissibility raised in defense, the administrative court of appeal, subsequently approved by the Council of State, held that, in the absence of any further details regarding the object and purpose of the challenge mentioned in the resolution, it could not be considered valid authorization given by the general meeting to the property manager to appeal the contested judgment.
Judicial determination of rent
3rd Civil Chamber, July 1, 2015 (No. 14-13.056) F-PB:
The owner of leased commercial premises sued the tenants to have the rent for the renewed lease set. To determine the rent for the renewed lease based on the market rental value, the Court of Appeal took into account, in particular, the three-year rent reviews that could have occurred on May 3, 2008, and May 3, 2011.
The Court of Cassation overturned the judgment, ruling that, by doing so when no request for a three-year rent review had been made by extrajudicial act or registered letter, the Court of Appeal violated Articles L. 145-37 and R. 145-20 of the French Commercial Code.
